When are we coming out of recession?

When are we coming out of recession?

This is a question that is being asked every day. The left say “No” and the right say “Maybe”.

Everyone has their own way to get out of this downturn, but my belief is that only time will decide when it ends.

Basically, by the middle of the last decade, we were borrowing and the banks were lending as if there was no tomorrow.

The result of this madness produced too many buyers, which led to the creation of too many sellers.

Then it hit us. The customers stopped buying, giving all those sellers a problem. There were too many of them, some had to go. In fact a lot had to go. We are going to have to keep losing them until the balance between sellers and buyers is roughly equal.

Maybe this is too easy, because something else happened. The buyers realised that they had borrowed too much, and they weren’t going to buy again until those debts had come down, which meant that it was going to be even longer before they start spending.

The reduction of suppliers has increased unemployment leaving even fewer people with enough money to buy. While those who hadn’t lost their jobs fear that they could lose theirs. The result is even less spending.

In the UK you can see this in the shopping Malls. You still see people walking around but now they are not carrying bags full of purchases; they are just browsing in those shops that are still open.

We come to the question, when will we come out of this recession?

When the massacre of sellers comes down to a trickle, personal debt reduction reaches the point where customers are happy to buy and finally, when those still in work are confident that they are going to stay in work.

At this point we will have finally have reached a position where there are enough sellers to supply the customers in the market and we will start to grow again.

What can government do to speed this up?

They have to Increase disposable income so the buyers can reduce their borrowing to the point where they are happy to buy. Unfortunately this will take time.

Government has two ways to achieve this, reducing tax thereby increasing people’s disposable income or increasing public sector employment so more people are employed`.

The problem is that both routes will take time and that of increasing the public sector will increase government borrowing, creating a problem for the future. So the only long term solution is to reduce tax, unfortunately politically this isn’t possible, with the result that it is going to take longer for the debt mountain to fall to the point where the majority of the population feel they can spend again.

Unfortunately, we live in a time when the public expect instant solutions and there aren’t any. We will have to wait either until the politicians are prepared to take the tough decisions or until, eventually, the sellers and the buyers become roughly equal.

The good news is that once we reach that point the economy will be rising on a firm basis, hopefully without the reckless borrowing we saw in the last decade.

Tony Dalton
Author of Cash Management
Making your business cash-rich … without breaking the bank
ISBN 987-1-4081-3984-4
Leader Warwick District Council 1991-5

For more information contact tony.dalton20@gmail.com or ring 01926 855920

© Tony Dalton 2012